Indian Oil Corporation Limited 3rd Integrated Annual Report
About the Report
NOTES TO FINANCIAL STATEMENTS
Note-1A : SIGNIFICANT ACCOUNTING POLICIES
such an exchange or modification is treated as
the derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
Statement of Profit and Loss.
17.3 Embedded Derivatives
If the hybrid contract contains a host that is a
financial asset within the scope of Ind AS 109, the
Group does not separate embedded derivatives.
Rather, it applies the classification requirements
contained in Ind AS 109 to the entire hybrid contract.
Derivatives embedded in all other host contracts are
accounted for as separate derivatives and recorded
at fair value if their economic characteristics and
risks are not closely related to those of the host
contracts and the host contracts are not held for
trading or designated at fair value though profit or
loss. These embedded derivatives are measured at
fair value with changes in fair value recognised in
the Statement of Profit and Loss, unless designated
as effective hedging instruments. Reassessment
only occurs if there is either a change in the terms
of the contract that significantly modifies the
cash flows that would otherwise be required or a
reclassification of a financial asset out of the fair
value through profit or loss.
17.4 Offsetting of Financial Instruments
Financial Assets and Financial Liabilities are offset
and the net amount is reported in the Balance Sheet
if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to
settle on a net basis, to realise the assets and settle
the liabilities simultaneously.
17.5 Derivative Instrument- Initial recognition /
subsequent measurement
The Group uses derivative financial instruments,
such as forward currency contracts, interest rate
swaps and forward commodity contracts, to hedge
its foreign currency risks, interest rate risks and
commodity price risks, respectively. Such derivative
financial instruments are initially recognised at fair
value on the date on which a derivative contract is
entered into and are subsequently re-measured
at fair value. The accounting for subsequent
changes in fair value of derivatives depends on
the designation or non- designation of derivative
as hedging instruments. Derivatives are carried as
Financial Assets when the fair value is positive and
as financial liabilities when the fair value is negative.
17.5.1 Derivative that are designated as Hedge
17.5.2
Derivate that are not designated as hedge
Instrument
instrument
The Company designates certain foreign exchange
forward contracts for hedging foreign currency
risk of recognized foreign currency loans and
liabilities. The Company also undertakes commodity
forwards as hedge instruments for commodity price
risks (margin) for highly probable forecast sale
318 Financial Statements
transactions. The Company generally designates
the whole forward contract as hedging instrument.
These hedges are accounted for as cash flow
hedges. These hedging instruments are as per the
policies approved by the Board of Directors.
At the inception of a hedge relationship, the
Company formally designates and documents the
hedge relationship to which the Company wishes to
apply hedge accounting and the risk management
objective and strategy for undertaking the hedge.
The documentation includes the Company’s risk
management objective and strategy for undertaking
hedge, the hedging/ economic relationship, the
hedged item or transaction, the nature of the risk
being hedged, hedge ratio and how the entity will
assess the effectiveness of changes in the hedging
instrument’s fair value in offsetting the exposure to
changes in the hedged item’s fair value or cash flows
attributable to the hedged risk.
Such hedges are expected to be highly effective
in achieving offsetting changes in fair value or
cash flows and are assessed on an ongoing basis
to determine that the hedge is actually have been
highly effective throughout the financial reporting
periods for which it was designated.
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash
flow hedges is recognized in Other Comprehensive
Income and accumulated under the heading Cash
Flow Hedge Reserve within Equity. The gain or loss
relating to the ineffective portion is recognized
immediately in the Statement of Profit and Loss
and included in the Other Income or Other Expenses
as Gain on Derivatives or Loss on Derivatives
respectively.
Amounts previously recognized in OCI and
accumulated in equity relating to effective portion
are reclassified to Statement of Profit and Loss in
the periods when the hedged item affects profit
or loss, in the same line item as the recognized
hedged item or treated as basis adjustment if a
hedged forecast transaction subsequently results
in the recognition of a non-financial asset or non-
financial liability. When a forecasted transaction
is no longer expected to occur, the cumulative gain
or loss accumulated in equity is transferred to the
Statement of Profit and Loss.
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or no longer
qualifies for hedge accounting.
The Company enters into certain derivative
contracts to hedge risks which are not designated
as hedges. Such contracts are accounted for at fair
value through the Statement of Profit and Loss and
NOTES TO FINANCIAL STATEMENTS
Note-1A : SIGNIFICANT ACCOUNTING POLICIES
are included in the Other Income or Other Expenses
as Gain on Derivatives or Loss on Derivatives
respectively.
17.6 Commodity Contracts
Commodity contracts that are entered into and
continue to be held for the purpose of the receipt
or delivery of a non-financial item in accordance
with the Group’s expected purchase, sale or usage
requirements are held at cost.
18. CASH AND CASH EQUIVALENTS
Cash and Cash Equivalent in the Balance Sheet
comprise cash at banks and on hand and short-term
deposits with an original maturity of three months
or less, which are subject to an insignificant risk of
changes in value. Bank overdraft (negative balance
in Account) is shown under short term borrowings
under Financial Liabilities & Positive balance in that
account is shown in Cash & Cash Equivalents.
19. TREASURY SHARES
Pursuant to the Scheme of Amalgamation, IOC
Shares Trust has been set up by IOCL for holding
treasury shares in relation to IBP and BRPL mergers.
The shares held by IOC Shares Trust are treated as
treasury shares.
Own equity instruments that are reacquired
(treasury shares) are recognised at cost and
deducted from equity. No gain or loss is recognised
in the Statement of Profit and Loss on the purchase,
sale, issue or cancellation of the Group’s own equity
instruments.
20. FAIR VALUE MEASUREMENT
20.1 The Group measures financial instruments, such
as, derivatives at fair value at each Balance Sheet
date. Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at
the measurement date.
20.2 The fair value measurement is based on the
presumption that the transaction to sell the asset
or transfer the liability takes place either in the
principal market for the asset or liability, or In
the absence of a principal market, in the most
advantageous market for the asset or liability The
principal or the most advantageous market must be
accessible by the Group.
20.3 The fair value of an asset or a liability is measured
using the assumptions that market participants
would use when pricing the asset or liability,
assuming that market participants act in their
economic best interest.
20.4 A fair value measurement of a non-financial asset
takes into account a market participant’s ability to
generate economic benefits by using the asset in
its highest and best use or by selling it to another
market participant that would use the asset in its
highest and best use.
61st Annual Report 2019-20
20.5 The Group uses valuation techniques that are
appropriate in the circumstances and for which
Chairman’s Desk
sufficient data are available to measure fair value,
From the
maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
20.6 All assets and liabilities for which fair value is
measured or disclosed in the financial statements
are categorised within the fair value hierarchy,
About IndianOil
described as follows, based on the lowest level input
that is significant to the fair value measurement as a
whole:
Level 1 — Quoted (unadjusted) market prices in
active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest
Description of Capitals
level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3 — Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in
Board of Directors, etc.
the financial statements on a recurring basis, the
Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing
categorisation (based on the lowest level input that
is significant to the fair value measurement as a
whole) at the end of each reporting period.
In case of Level 3 valuations, external valuers are
Directors’ Report
also involved in some cases for valuation of assets
and liabilities, such as unquoted Financial Assets,
loans to related parties etc.
For the purpose of fair value disclosures, the Group
has determined classes of assets and liabilities on
the basis of the nature, characteristics and risks of
Discussion & Analysis
the asset or liability and the level of the fair value
Management’s
hierarchy as explained above.
21. EARNINGS PER SHARE
The basic Earnings Per Share (“EPS”) is computed
by dividing the net profit / (loss) after tax for the
year attributable to the Equity Shareholders of the
Responsibility Report
Holding Company by the weighted average number
of equity shares outstanding during the year,
Business
adjusted for bonus elements in equity shares issued
during the year and excluding treasury shares.
The holding company did not have any potentially
dilutive securities in the years presented.
22. BUSINESS COMBINATIONS AND GOODWILL
Corporate Governance
22.1 In accordance with Ind AS 101 provisions related
Report on
to first time adoption, the Group has elected to
apply Ind AS accounting for business combinations
prospectively from 1 April 2013. As such, Indian
GAAP balances relating to business combinations
entered into before that date, including goodwill,
Financial Statements
have been carried forward with minimal adjustment.
Consolidated
The same first time adoption exemption is also used
for associates and joint ventures.
Financial Statements 319